VMware backpedals on price changes after customer criticism

After criticism over new restrictions on the amount of virtual memory customers can deploy before having to buy new licenses, VMware has boosted the limits on virtual RAM so high that most customers should not be negatively affected.

VMware's new licensing model introduced on July 12 was an attempt to shift from pricing based on physical resources to pricing based on virtual resources, perhaps a sensible move given that VMware is a virtualization company. As VMware says, its goal is to "align costs with the benefits of virtualization rather than with the physical attributes of each individual server."

But some customers complained to VMware that the model would restrict their virtualization efforts by requiring the purchase of more licenses to achieve the same level of consolidation they were accustomed to, or at the very least restrict their future growth.

In response, VMware this week doubled the amount of virtual RAM - or vRAM as VMware calls it - allowed with each vSphere Enterprise license, raised the vRAM entitlement by 33% for customers on lower-price licenses, and quadrupled the vRAM entitlement for the free version of its hypervisor.

Analysts who said the July 12 changes were unlikely to affect many customers in the first place said this week's move is a positive step.

As VMware said on July 12, "VMware vSphere 5 will continue to be licensed per processor (CPU), however, VMware is eliminating the current, restrictive physical entitlements of CPU cores and physical RAM per server and replacing them with a single, virtualization-based entitlement of pooled virtual memory, or vRAM."

But in an update on Wednesday, VMware acknowledged this didn't sit well with some customers.

VMware's description of customer feedback was that "The vSphere 5 licensing model affects only a small percentage of customers today, but customers are concerned about their future-looking business cases based on new powerful hardware capabilities, introduces additional hesitation for virtualizing business critical apps, [and] penalizes short lived usage "spikes" in dev & test, and transient VMs."

Therefore, VMware on Wednesday raised vRAM entitlements on each license so that "hardly any customer will be impacted by higher licensing costs upon upgrading to vSphere 5"; capped the amount of vRAM counted toward each virtual machine at 96GB so that "no application, [no] matter how big, will require more than one vSphere Enterprise+ license to be virtualized"; and decided to calculate consumption of vRAM on a 12-month average so that customers won't be required to pay indefinitely for short-lived increases in usage.

Instead of 48GB of vRAM allotted to vSphere Enterprise+ licenses, that number will go up to 96GB. VSphere Enterprise licenses get 64GB instead of the previous 32GB, while Standard and Essentials licenses now get 32GB instead of 24GB. Additionally, the free vSphere hypervisor will be allotted 32GB of vRAM rather than 8GB.

Customers are still debating the merits of the new model.

"This is a fairer model (compared to before)," one customer writes. "Yes it's not as great as it was with vSphere 4, yes we cannot milk vSphere to achieve crazy consolidation ratios like before ... but it's a heck of a lot better than what was initially proposed for vSphere 5.0 and realistically keeps the majority of their customers unaffected."

The same customer gives kudos to VMware for quadrupling the entitlement on the free hypervisor, writing "If my product was the best in the world by a clear mile, I wouldn't give it away free in the first place."

Forrester analyst James Staten says larger vRAM entitlements will make it easier for customers to upgrade because they'll have "greater investment protection for new systems that are expected to accommodate much more physical memory. There was some heartache from enterprises that in the future they planned to max out the memory of the servers they bought and they would have to buy multiple licenses per system because of these limitations. I don't think that would have been the case for most customers but facts and fears are often disconnected."

In an email to Network World, Staten also says the new model is similar to the way VMware prices its offerings for service providers, and encourages customers to increase the maturity of their own virtualizaton projects.

"To get the most from these licenses we encourage enterprise customers to pack their vSphere hosts as tightly as they can - putting more workloads on each host and using live migration to move off lower priority workloads when high priority workloads get busy and need more CPU and memory from the host machine," Staten writes. "We also highly encourage enterprises to improve on life-cycle management of VMs, clear out VMs that no longer should be running and moving low resource requirement apps to smaller VMs. Organizations should try to get to 60% or higher sustained average CPU and memory utilization on their existing host servers before adding new licenses."

Staten's colleague at Forrester, Duncan Jones, called the pricing model sensible but is concerned that it "creates a revenue stream from data inflation and Moore's Law. Whatever license capacity a customer buys now, it's going to have to buy more each year as it adds vRAM to cope with expanding workloads. We see the same problem with companies that charge 'per core' instead of 'per processor.'"

To make it more fair, VMware could use an index that automatically raises entitlements each year to keep pace with data inflation, but so far VMware is not doing that, he says.

Enterprise Strategy Group analyst Mark Bowker says even without this week's changes, the vRAM entitlement system could help some customers run more virtual machines per server by lifting constraints on individual physical resources.

But the criticism from customers who would be hurt by the pricing changes gives an opening to Microsoft to trumpet the benefits of System Center management tools and the Hyper-V technology bundled with Windows Server, Bowker says. For customers just getting started in virtualization and focusing on the low hanging fruit of consolidation and cost containment, Hyper-V is on par with VMware, he says. VMware may be necessary for the most advanced virtualization customers, but that is a minority.

Microsoft can point out that VMware has "backpedaled," and "reiterate and share their story," Bowker says.

With VMware's biggest annual event, VMworld, scheduled to hit Las Vegas at the end of this month, VMware "needs to be sure that this conversation is not the top conversation going into VMworld," Bowker says.

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